Spotify forecasts fourth-quarter profit above estimates as it leans into AI

Spotify SPOT-N forecast fourth-quarter profit above Wall Street estimates on Thursday, as the Swedish music streaming company bets on its AI-powered features to drive user growth in the crucial holiday season.

Shares of the company rose nearly 4 per cent in premarket trading.

Investors have closely watched the company’s profitability as it spends on AI to improve discovery and engagement to attract more users and fend off emerging music-generation rivals such as Suno and Udio.

Spotify expects operating income of €820-million ($920.53-million), compared with analysts’ average estimate of €813.4-million, according to data compiled by LSEG.

The company’s AI-powered features include AI DJ, which curates personalized music mixes with spoken commentary, and prompt-based playlists that let users describe a mood or listening preference to generate tailored selections.

“We’ve built a strong business that keeps compounding, we invest when we see a path for growth, our costs are moderating, and there is more runway ahead,” co-CEO Alex Norstrom said in a statement.

In the third quarter, Spotify’s operating income of €672-million came in line with Visible Alpha-compiled analysts’ average estimate of €671.8-million.

It posted revenue of €4.97-billion in the three months ended Sept. 30, compared with an LSEG-compiled estimate of €4.98-billion. It reported earnings per share of €2.48, compared with estimates of €2.80.

Spotify’s monthly active users forecast of 818 million for the fourth quarter was marginally below Visible Alpha estimates of 819 million, while its outlook for about 10 million increase in premium subscribers to 316 million was above expectations of 314.7 million.

Its monthly active users grew 1 per cent sequentially in the third quarter to reach 788 million.

Earlier this week, Spotify announced a licensing deal with music distributor Believe for its upcoming paid tool for fan-made AI covers and remixes. It has also signed licensing deals with Universal Music Group, Merlin and Kobalt for the tool.